Automate accounts payable
More and more companies are moving away from writing checks to pay their invoices. Why? Companies want a streamlined solution that will allow them to easily send money to vendors and suppliers. The days of writing out a check, stuffing an envelope, popping it in the mail, and waiting for the check to clear are becoming a thing of the past.
The simple fact is snags in the processing of payments are a drag on your company’s financial effectiveness. Delays in the processing of payments create uncertainty in understanding cash flow positions, opportunities for errors or lost checks, and even an increased chance of late fee penalties.
Electronic payment processing software allows you to pay vendors quickly, cut costs and improve your cash management and financial control.
Different ways to pay your vendors electronically
There are a few different ways to make payments electronically. Some smaller businesses rely on their financial institutions’ online bill pay system to set up payment transactions. With this method, you can plan one-time or automatic payments. This bill pay system relies on the financial institution to process the payment electronically or to send a check on your behalf. Triggering individual payments through your bank is a step in the right direction. It offers an automation benefit in terms of reducing the time it takes to pay your vendor. It also helps create cost savings related to reducing or eliminating check writing costs.
Arranging bank draws with vendors takes the automation a step further, but surrenders a measure of control. With this approach, you provide your business account number to the vendor. Through an EFT (electronic funds transfer) transaction they draw the specified dollar amount from your account on the agreed upon date. ACH (Automatic Clearing House) is a specific kind of EFT that utilizes the Automatic Clearing House network of financial institutions and EFT standards.
More and more accounting solutions are getting on board with electronic transactions. Software based systems offer the strongest level of control. They also help you streamline your bookkeeping processes and improve your ability to accurately understand your real time financial position. Some of the more sophisticated systems even allow you to scan in an invoice from your vendor, route that invoice to the appropriate manager for approval, and then pay that invoice from your accounting software through the click of a button.
Accounting software versus bank based bill pay
Why should you be looking at software options rather than banking based ones? The reality is that initiating bill payments directly through bank accounts has a couple of major disadvantages.
Bank based bill pay requires additional work to capture bill payment detail in your AP ledger. Duplicating the bill payment process (paying initially via the bank and then recording the transaction in your software) has a number of drawbacks. First, it’s a security and fraud risk. Secondly, it introduces time delays between the time the payment is initiated and when it is recorded in your accounting. Access to real-time data is one of the major advantages of electronic payment processing—so losing this benefit is a problem. Electronic bill payment should be convenient. Having to first initiate the payment within the bank software and then record transaction details into your software is simply a more cumbersome way to approach the process.
So, what are your software options if you are looking for a software based electronic bill pay solution? Typically, electronic payment capabilities are part of your accounts payable module which is part of your accounting system. Moving to electronic payments might even be one of the drivers motivating your desire to switch accounting or ERP systems. In some circumstances, it may make sense to have a specialized AP ledger with electronic bill pay capabilities connected to your ERP or accounting system. Generally, it’s a module or feature you’ll look for as part of an integrated system though.
Why purchase electronic payments software? Well, the major reason for switching is to save costs. Let’s take a closer look at some of the savings opportunities in more detail:
- Save costs related to material costs including postage, checks, envelopes, and printing
- Save costs related to paying people for less efficient processes
- Obtain early payment discounts from vendors
- Cut costs related to banking charges including (positive pay/payee match)
- Reduce fraud
- Avoid making late payments
Cash management advantages
Another important reason many companies are using electronic bill payment is to improve their cash management. We’ve mentioned the term cash management already, so what exactly do we mean by it? What we are referring to is simply your company’s ability to ensure maximum financial visibility, allowing for proper planning of cash resources. Simply ensuring your money is in the most advantageous position is a major opportunity for savings.
With electronic bill payment, instead of tying up your funds and guessing what is outstanding and waiting to clear the bank, you can have nearly real time insight into your finances and cash flow. Additionally, planning your payments with precision, means the opportunity to keep funds in interest earning positions.
How does it work?
Basically, electronic payments software provides a software-based front-end as either a part of your AP software or an integrated add-on solution.
Here are the steps for utilizing electronic payments in most software systems:
- Initialize the system with your financial institution account information.
- Add vendor data as required.
- Initiate any authorizations for pull-type payments where authorized providers initiate the payment transaction.
- Initiate any authorizations for push-type payments where you trigger payments to providers.
Is it for our company?
There are electronic payment processing software options for all companies of all sizes. There are even options for companies that are looking to leverage different existing technologies. So, which one is right for you? Let our team gather a bit more information and save you some time by searching for the best electronic payments processing options for your particular business needs. Get started today!